Concerns about a stock market crash are high after Federal Reserve Chair Jerome Powell threw some cold water on Wall Street rumors that the Fed will move to cut rates sooner than expected. expected. In fact, Powell assured viewers that talk of a cut is โpremature,โ even despite the strength of last month's inflation reports.
"It would be premature to confidently conclude that we have achieved a sufficiently restrictive stance, or to speculate on when the policy might be eased," Powell said today. in a speech at Spelman College.
Powell's comments come as a method of crowd control after days of frenzied speculation. Wall Street has been in an uproar since the release of the October personal consumption spending report (PCE) inflation report earlier this week. The PCE confirmed what the Consumer Price Index (CPI) had already said it clearly in mid-November: inflation is declining.
Prices rose less than 0.1% in October from September, reflecting annual inflation of just 3%, according to the Federal Reserve's preferred PCE. While this is nowhere near the Federal Reserve's long-established 2% target, it is clear to many analysts that inflation has surpassed the curve.
With fears of a recession still looming large heading into the new year, some economists believe the Federal Reserve should look to cut rates before its potential โsoft landingโ scenario turns into an eventual โhard landing.โ
In fact, interest rate traders are currently estimating a nearly 50% chance of a rate cut by March next year, according to the CME FedWatch Tool. Traders are also confident that the Federal Reserve will keep rates steady at its next policy meeting on December 13.
What do Powell's hawkish comments mean for a potential stock market crash?
Powell's comments today have served to rebalance the narrative.
"While the lower inflation readings in recent months are welcome, that progress must continue if we are to reach our 2% goal," Powell said.
Powell is not alone in his pragmatism. In fact, on Tuesday, Federal Reserve Governor Michelle Bowman He said he believes the Federal Reserve will likely need to raise rates at least one more time to keep price levels low.
According to Bowman, structural changes in the post-pandemic economy, general economic uncertainty, interest rate insensitivity, and the potential for new labor shortages point to the need for more rate increases in this cycle.
"In my view, given potential structural changes in the economy, such as increased demand for investment relative to savings, it is quite possible that the level of the federal funds rate consistent with low and stable inflation will be higher than before. of the pandemic". Bowman said, according to Reuters.
The hawkish narrative comes amid concerns that overly tight monetary policy could give way to economic deterioration, potentially in the form of a recession in 2024. To that end, it is unclear what the future will hold. However, it is clear that many Federal Reserve officials are more concerned about lowering prices than a possible recession.
On the date of publication, Shrey Dua did not hold (either directly or indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com. Publication Guidelines.
